Dag has been pretty anti-everything you've done so far in Assassin's Creed Valhalla, so it's unsurprising that you end up fighting him. There's an important choice to be made at the end of the fight: give Dag his axe or just let him die? This decision does actually affect the ending of the game, so we've detailed what happens below.
Assassin's Creed Valhalla: should you give Dag his axe?
Whether or not you give Dag his axe at the end of your fight with him depends on how you feel about Sigurd at this point. Weirdly, there are a few major choices throughout Valhalla that will determine a choice that Sigurd makes at the end. I'm not going to go into it here, but if you're still hoping to save Sigurd then give Dag his axe. If you're not really bothered about what he thinks of you, deny him the axe. The Grantebridge traitor choice is another that plays into this system.
What happens if you refuse to give Dag his axe?
From a lore standpoint, the Danes in the game believe that dying with your axe in hand grants passage to Valhalla, where they will become one of Odin's warriors. Denying Dag this is a pretty big deal, but then again he did try to kill you. Even so, Sigurd will look down on this decision to refuse him entrance into Valhalla, so choose carefully.
Whether you give Dag his axe or not there's still plenty more to do in Assassin's Creed Valhalla. To see all of our guides in one handy place, head to our Walkthrough. There's also our look at the romance options available to Eivor.